A word from the CEO
STRONG ORGANIC PROFIT GROWTH AND GEOGRAPHIC EXPANSION
To sum up the year 2020, we achieved our desired goals despite the challenges arisen from the pandemic. Major efforts to strengthen profitability resulted in an operating profit growth of 39 percent. At the same time, our conditions for continued profitable growth have strengthened considerably during the year.A clear strategic agenda for growth and a transformative acquisition provides for a positive development in the years ahead, in an industry that is looking very interesting.
For the year 2020 as a whole, operating profit after depreciation/amortization (EBIT) increased by 39 percent to MSEK 43, and earnings per share increased by 50 percent. Net sales decreased by 3.6 percent to MSEK 468. In unchanged currency levels, net sales decreased by 1.1 percent. The gross margin increased from 26.8 percent to 28.7 percent, and the operating margin increased from 6.4 percent to 9.2 percent. Solidity increased from 47.8 percent to 51.9 percent and cash flow from operating activities remained strong at MSEK 31.1. The net debt decreased by MSEK 8.5 and amounted to MSEK 101.4. Overall, it was a strong year; key ratios improved significantly, and we saw strong profit growth in both our geographies.
The last year was, of course, characterized by the pandemic, which brought short-term challenges also to our industry. In the long term, it is clear that the develop- ments during the year has strengthened the conditions for growth significantly in network infrastructure. Work from home, demand for stable and secure connection, and the 5G transition are driving forces behind a development to our benefit.
While the uncertainty due to the pandemic will linger for the near future, we expect to see a positive development during 2021 as a whole. Our entry into new markets, synergies arising from the 6X International acquisition and the efforts taken in 2019 and 2020 should create favourable conditions for the Alcadon group, moving forward. Furthermore, a number of significant customer contracts signed in 2020 indicate that there is a strong interest in the market for business development with Alcadon.
INDUSTRIALLY RATIONAL ACQUISITIONS AND GEOGRAPHIC EXPANSION
Acquisitions are an important part of our strategy. Our aim is to carry out industrially rational acquisitions with a clear strategic agenda on a continuous basis. By acquiring well-managed, profitable companies in our own core business segment, with a clear agenda, we will be more likely to achieve a successful integration and hence a value-creating outcome. Today, we have a strong offer for entrepreneurs. There is significant room for influence and autonomy within the group, in an en- trepreneurial environment characterized by industry excellence. Simply stated, it is an environment to evolve in and to benefit from.
The acquisition of the 6X International group at the beginning of 2021 gives Alcadon a strong position on the growth markets Germany and Denmark. In combination with cross-selling synergies and and competence sharing, this presence will have a positive impact on the Group’s development for many years to come. Alcadon and 6X have worked together in 2019 and 2020 and there are many similarities between the business culture of the companies, with a common focus on entrepreneurship, product competence and premium solutions. This will make for a successful integration. In addition, our group management is strengthened with Susanne Stengade, the former owner and CEO of the 6X group.
Since the listing in 2016, when the Group reported net sales of approximately MSEK 280, five acquisitions have been completed, 6X included. As a result, the Group’s net sales have increased by more than MSEK 400. We intend to maintain a high pace of acquisitions in the future as well. The basis of our acquisition strategy is that there should be significant synergies and exchange of competence between us and the acquired companies – and, of course, cultural similarities. As in the past, we are evaluating acquisitions on both existing and new geographic markets. Following last year’s strong development, we have the financial resources needed to continue our growth journey.
BUSINESS DEVELOPMENT FOR CONTINUOUS IMPROVEMENT
We find it essential to maintain our strong position in the premium segment of commercial properties and fiber networks (FTTx). The best way of achieving that is by focusing on our employees and their development, and by developing value-creating solutions in collaboration with customers, thus retaining our role as a center of excellence. According to our employee and customer surveys, we are currently succeding in that resolve – but we strive to become even better, and we are working consistently to address issues such as diversity and decentralized leadership. You are welcome to read more about our sustainability efforts in our sustainability report, which is available on alcadongroup.se.
The year 2019 was characterized by the optimization of our organization and cost structure. This laid the founda- tion for profitable growth in 2020, which also saw further positive developments with the introduction of a new central logistics unit, a number of key recruitments and increased gross margins. As a result, we now stand even stronger as we move into 2021, with the whole Group focusing solely on continued profitable growth. Now more than ever, we are developing new solutions in fiber networks and cable systems to support our growth agenda. The efforts that we initiated in 2020 have been successful and will continue in 2021. A good example is our focus on data centers, which saw growth beyond 40 percent during 2020.
NETWORK INFRASTRUCTURE – THE FOUNDATION OF A DIGITAL AND SUSTAINABLE SOCIETY
Alcadon provides products and complete systems for managing intra-property, inter-property and inter-city data transfer. The offer includes cable systems for properties as well as fiber cabling with accessories for complete fiber networks in connection with broadband and 5G rollouts.
Investments in digital infrastructure with robust networks create the basis for a sustainable society, promoting competitiveness and enabling the emergence of the Internet of Things (IoT), smart properties and flexible workplaces. FTTH Council Europe has been able to demonstrate that societies that invest in digital infrastructure and transition from copper to fibre experience significant benefits. Benefits include significantly improved energy efficiency, reduced unemployment, lower maintenance costs and an increased number of business start-ups.
In addition, the growth conditions for network infrastructure are apparent from current megatrends. The fundamental driver of investment needs is the growing amount of data, which in Europe is expected to increase by 35 to 50 percent annually over the coming years. This growth is not manageable without 5G and broadband rollouts, and this affects our Fiber networks business area.
Most countries have ambitious state objectives for broadband rollouts; in Sweden, about 30 percent of investments are still to be made before state objectives are met, and in Germany, the number of households with broadband access are expected to increase more than sevenfold by 2026. Denmark and Norway are in a development phase between Sweden’s and Germany’s. In addition, more and more people are expected to demand robust network connections regardless of workplace in the wake of the pandemic, which should have a significant effect on the pace of fiber network rollout. A 5G rollout further requires about 2 to 6 times more fiber than at a broadband rollout, and significantly more than the construction of the 4G network. Moreover, due to technology development and population growth, the fiber deployment will never be completely finished.
The increasing amounts of data will also impact commercial property network investment, as approximately 80 percent of the bandwidth is in use indoors. Over the last 10 years, commercial property cable systems have shown steady annual growth of around 7 percent. The cable systems are generally replaced at least every 12 years, but also in conjunction with relocations, reconstruction and renovation. Technology development is shortening the exchange cycles considerably over time, and that trend is expected to continue when wireless components become more abundant. The segment most affected by increased amounts of data may be investments in data centers, which in the coming years is expected to grow by 10 to 25 percent annually in the Nordic countries. This is a very interesting development.
Thus, the market trend is positive and I am convinced that we are properly positioned to take advantage of the development together with the operators, installers, construction companies and data centers with whom we cooperate.
The conditions for profitable growth look favourable. All in all, I can only express my satisfaction with our achievement in 2020, which, in a positive sense, became a transformative year.